The large financial institutions ratings system (LFI Ratings System) applies to:
BHCs with total consolidated assets of less than $100 billion will continue to be evaluated under the current RFI rating system; non-insurance, non-commercial SLHCs with less than $100 billion in total consolidated assets will also be subject to the RFI rating system beginning February 1, 2019. (The Federal Reserve published a separate notice outlining the application of the ratings systems to SLHCs.)
The LFI Ratings System uses a new four-category scale with descriptive terminology that ranks firms as Broadly Meets Expectations, Conditionally Meets Expectations, Deficient-1, and Deficient-2.
A firm must be rated “Broadly Meets Expectations” or “Conditionally Meets Expectations” in each of the three component ratings to be considered “well managed.”
The ratings system will assess these three components:
The Federal Reserve is still considering two Governance and Controls proposals: (1) the proposed guidance on supervisory expectations for boards of directors and (2) a proposal on management of business lines and independent risk management and controls. It is not adopting either proposal at this time. For purposes of evaluating the Governance and Control component under the LFI Ratings System, the Federal Reserve states that it intends to rely primarily on “SR Letter 12-17/CA Letter 12-14 and safety and soundness” to assess the effectiveness of a firm’s board of directors. Similarly, the agency will rely on existing risk management guidance to assess the effectiveness of a firm’s management of business lines and independent risk management and controls. Separately, the Federal Reserve is also revising provisions in Regulations K (International Banking Operations) and LL (Savings and Loan Holding Companies) for consistency with the new LFI Ratings System.